Building Capital Asset Pricing Model

Building single factor Capital Asset Pricing Model (CAPM) is another section within this online course. 

This section introduces Risk Distinction between diversifiable and non-diversifiable risks.

Ahead understand Capital Market Theory, Market Portfolio and the Capital Market Line, the concept of Beta, various risk-adjusted ratios, Tobin’s Separation Theorem, Security Market Line, and the performance of actively managed funds over the years.

Risk can be broadly diversified into the unsystematic or unique risk that pertains to a firm and can be diversified compared to Systematic Risk that cannot be diversified. Examples of systematic risk are global recession and interest rate risk. 

The single factor CAPM model includes all tradeable assets combined with a riskless asset. Riskless asset has a zero standard deviation and usually treasury securities of advanced countries that have no sovereign default risk. Highly diversified like S&P 500 are taken as a proxy for the market portfolio.